Trump just shredded some big retail stocks with his new China tariffs

President Donald Trump is not making apparel and home goods stocks great again.

The Trump administration slapped China with fresh 15% tariffs on some $125 billion of largely consumer products on September 1. Whereas products such as smart speakers, T-shirts and footwear mostly side-stepped the first round of tariffs, they weren’t so lucky this time around.

About 77% of all shoes, clothes and home textile imports to the U.S. from China now has a tariff attached to it, according to research by the American Apparel and Footwear Association.

Keep in mind there is one more (at least) round of tariffs on these types of consumer products lurking for December 15.

Despite apparel and home goods companies doing their best to assure Wall Street this earnings season they are working hard to mitigate the tariff impact — by shifting production outside of China and taking price increases — investors in the space remain very nervous on the bottom line impact. The outcome of the holiday season for many retailers truly hang in the balance on whether they can mitigate tariffs to a material extent (if at all).

Most of these stocks have been under pressure all year long amid the threat of higher tariffs and spotty traffic to physical stores. And the risk isn’t something being drummed up by Wall Street to trigger selling and open up buying opportunities.

‘Tariffs are ultimately attacks on the end consumer’

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Chinese made clothes are displayed for sale at a Manhattan department store (Photo by Spencer Platt/Getty Images)

“For most companies, it will take time to materially diversify operations away from China and/or adjust costs. There are long lead times in the production cycle and it can take time to work through potential limitations in apparel and footwear manufacturing capacity in other countries, including quality control checks,” says Moody’s analyst Michael Zuccaro. “Although companies may opt to increase prices, it will be difficult to do so. U.S. consumers, saddled with higher costs, would likely cut back on purchases, which would take a bite out of company revenue and profitability.”

Cautioned Best Buy (BBY) CEO Corie Barry on an earnings call last week, "It is hard to predict how at the macro level, consumers will react to higher prices resulting from tariffs."

Barry’s sentiment was echoed over at Foot Locker (FL) during its latest earnings call.

"The tariffs are ultimately attacks on the end consumer and we need to figure that out how to soften that blow for the consumer. On the footwear side, each of those conversations with our vendor partners is a fluid conversation, right. There is a lot of energy in the industry to try to get the footwear piece of the tariffs postponed or pulled out of the next roll out,” said Foot Locker CEO Richard Johnson.